The European Parliament is holding a conference named “Beyond GDP” during November 19-20 in Brussels. This is good news. Ever since the Earth Summit in Rio de Janeiro in 1992, when 170 governments signed Agenda 21 agreeing to correct the errors in Gross National Product (GNP) and its domestic version (GDP), statistical offices have laboured to comply.

What are the shortcomings of GNP/GDP as scorecards of national progress? Economist Simon Kuznets, who developed the GNP/GDP measure, never saw it as an overall scorecard of a country’s progress: “The welfare of a nation can scarcely be inferred from a measurement of national income,” he told the US Congress in 1932.

This money-measured index came into full use during World War II as a way to measure war production, adding up all the production of tanks, airplanes, automobiles and all the other goods and services exchanged in a nation’s cash economy.

Changed scenario

Today in most industrial economies, services have grown faster than goods and statisticians are constantly revising GDP components to account for our evolving societies and technologies. But since GDP only includes money-measured production, these national scorecards ignore many of the social and environmental costs of production – as do corporations. Economic textbooks refer to these costs borne by society and future generations as “externalities” which could be omitted or “externalised” from company balance sheets and therefore from GDP as well.

But by the 60’s, grassroots groups began to notice the perverse effects of corporate profit-making activities. They saw how GDP scorecards also ignored all wider aspects of national progress and even tacitly encouraged bad behaviour. For example, since ecological assets like forests and ocean fish stocks are not valued in GDP, a country could chop down its forests and record the sale of the wood as an addition to GDP with no losses recorded anywhere. Similarly, GDP treats education as a cost, instead of the basic investment societies make in developing educated, productive citizens.

In the past decade, companies began accounting for the social and environmental costs of their production, internalising them in “triple bottom line” balance sheets now used by over 600 global corporations. But, similar corrections have not been made to GDP. Following economics textbooks, GDP still sets at zero the value of vital ecological assets: clean air, water and biodiversity, as well as the value of healthy, productive citizens and their unpaid work (raising children, maintaining households, caring for the sick and elderly, serving as volunteers, etc.) which accounts for some 50 per cent of all production, even in industrial societies.

So since the Earth Summit, citizens groups have been pushing their local officials, academics, and statisticians to create broader indicators of progress and quality of life. Many cities around the world now have indexes of their quality of life using metrics beyond money and economics from many fields: public health, environmental sciences, poverty gaps, and human rights.Yet mainstream media still slavishly report on GDP, unaware of all its deficiencies.
Meanwhile, macro-economists, statisticians, and their bureaus and academic allies continue to drag their heels, collecting research grants to compile data on environmental damage and social costs. But instead of subtracting all these costs from GDP accounts, they keep them separate as “satellite” accounts. They are also ignored by powerful government ministries catering to business and financial markets’ shared goal of GDP growth.

New formula

Today, these costs are visible and mounting, so challenges to GDP have reached political agendas worldwide. Predictable battles erupt between the politicians and interest groups who benefit from GDP’s view of “progress” and the rest of societies which bear the costs and risks of continuing the GDP-growth recipe.

China's “Green GDP” initiated in 2004 is challenged by local leaders and businesses rewarded by the GDP-growth formula, even as Chinese citizens fight pollution and the loss of their lands to developers. However, the tide is turning.

Perhaps, after the European parliament conference, the 27 nations of the EU will be the first to adopt a new GDP that can integrate all the factors that comprise our quality of life.

-IPS (The writer is author of Ethical Markets: Growing the Green Economy.)